Medusa Share Discussion Threads

[chipperfrd] 01/2/2016 14:29

Justin,

I liked your shale oil & gas industry comparison!

It could also be extended to the wider conventional oil industry. Both are maintaining production into falling demand and a world-wide glut in order to meet repayment schedules on colossal debt levels (in the case of the frackers) and increasing budget deficits (for the Sovereigns).

Yet down at the level of MML they have taken the decision to deliberately defer short-term increased production in order to enhance an investment beyond it's previously targeted 10-year span. And this is into a market where demand (in the East) has grown way beyond global annual production.

The action taken would appear (to me) to speak volumes regarding confidence in their business and in their perception of the future direction of the gold price.
Chip

[chipperfrd] 01/2/2016 13:57

Steve,

Firstly, 'Happy Birthday', hope you have a good day.

I do not expect to change your perceptions or opinions so posting my contrary views are unlikely to be productive regarding our specific interchanges. However, like you, I am entitled to my own view and to also challenge postings which I consider incorrect or unfair.

You state that you want to see this company doing well but you make no comment regarding their steady improving quarterly performance but instead focus on your own perception of management.

I am unashamedly a 'glass half full' person but, amongst other things, I really had to question your negative take on their release of the latest quarterly. Don't you think that you are taking it too far in your 'glass half empty' perception when you think that a mid-day release on a Friday is somehow evidence of management malfeasance?

In the last 8 years they have released their December quarterlies on 29th, 30th, 30th, 30th, 25th, 21st, 28th and 31st - so this year is predictably on-time.

Like you, I am extremely disappointed with the price on the ASX and feel that it is at a significant discount to their improving performance. That is why I consider the stock to be one of the best buys in the sector.

I am not 'in love' with the stock as you put it, it is just one of the 25 PM stocks I am currently holding. If I did not feel (and calculate) that it had considerable upside to a fairer valuation, I would not be accumulating it. It really is that simple!

I would certainly have liked to see the Service Shaft completed in September and for ore haulage to finally reach it's optimum level. But, if they see an advantage in taking it a couple of levels lower (and they obviously do), then surely this is the right time to do it, with PM prices low and current haulage still providing them with a decent level of Free Cash Flow.

No guarantees of course, but buying a few extra years of operational use of that new shaft whilst conserving higher production for (likely) better times ahead would appear to offer a decent probability of a 'win-win'.

All the best. I trust that we will both see an improved share price going forward.
Chip

[atlantic57] 01/2/2016 13:16

thanks chip

[chipperfrd] 01/2/2016 12:58

Atlantic,

I was actually referring to Price/Earnings in my earlier post. It is a somewhat different ratio with Price/FCF - and you will need to search pretty hard in the PM sector to find many producers who actually have much Free Cash Flow!

For an idea of current P/E across a segment of the producers it is always worth looking at the tables produced by Matlock on Kitco.

Currently,the 8 largest stocks have an average P/E for 2015e of 36.4 and 2016e of 48.5.

The 14 Mid Cap stocks have an average for 2015e of 30.6 and 2016e of 22.3.

The 20 Small Cap stocks have an average of 18.6 for 2015e and 26.2 for 2016e.

I am currently using 10-15x in my forward estimations for gold producers (depending on stock).

MML looks to be on track for FY16 to be on a P/E multiple of just 1.2x. Hence my comment.

Justin raised another interesting multiple for MktCap/Cash - which was also extremely low.
Chip

[roguetreader] 01/2/2016 12:18

Justin, Steve, Chip
Each of your posts and 'Differing' view points appreciated.
RT

[deka1] 01/2/2016 12:07

Justin that's a crackin comparison with the Frackers,good post says it all for us holders , I don't take notice of the of the naysayers , they don't hold stock imo, or they would be looking at the positives , as you have just shown in your excellent post.

[justinjjbuk] 01/2/2016 12:01

And Steve, I do feel your pain as I have a substantial position in MML as well! And have a happy birthday and I hope MML gives you a better 2016 :)

[justinjjbuk] 01/2/2016 11:55

Following Chip's comments, I also think it worth putting MML's situation into a little perspective by comparing it with the situation at other commodity producers. Take for example, one entire industry: the frackers in the US. There, the management teams across almost the entire industry created identical business models based on the assumption of a high oil price continuing into the indefinite future.

They then instigated hyper-aggressive capital expenditure (capex) programmes financed by mounds of debt.

After ONLY a one year bear market in oil, the cash flow of the frackers is not covering their operating costs and debt service obligations. But it gets worse: frackers capex is made in wells that deplete rapidly over a few years. Thus, for the businesses to be sustainable, the frackers must constantly invest aggressively in new wells or their businesses in effect shut down.

As a result of management misjudgement (noting again we are ONLY just over one year into a bear market in oil), the frackers are one by one going bust with not only their equity holders all going to zero, but their debt holders as well.

Compare this with MML. After a FIVE-YEAR bear market in gold, MML is completely debt free. Moreover, it has not only been able to sustain a capex programme that has maintained production by replacing depleted assets but has actually gone beyond that such that production has grown substantially and is at a record high.

Moreover, last quarter, with gold on its back, MML had $16 million of cash on its balance sheet and cash was actually rising (not falling!) rapidly.

So, yes, I am as frustrated as the next person on mill delays, batteries getting left out in the wet, a CEO succession being handled badly and so on and so forth, but at the end of the day MML has been exposed to a bone-crushing bear market in gold and has not only survived it but has actually emerged stronger and fitter than ever before. How many firms in the commodity complex can you say that about?

[stevea171] 01/2/2016 11:10

Chip. It's my Birthday today, 1st Feb, so just a few lines is all I've got time for.

Thank you for for your unjustified criticism. I am well aware of the original timeline of 17 months. What I said was: "September has never before been specifically declared to be the project end date." Which is the case.

I have read all the RNS's the same as you. What was also said was progress was being made faster than was thought and there was the mention I think a number of times of 2nd quarter for the installation of the man cage which one would assume is the final stage. Thus the most recent advice we have had is completion on or before end June. You say you marked September as the end date although September was never mentioned. I took note of later advice and also Rob saying it should take about a year ie May 2016?

I stick 100% by my lies and distortions as we have all noted a number of examples of these now since November and you taking umbrage of me pointing them out does not make them go away.

>>>>> You say "They always report on the last day of the month following a quarter - so I do not accept your criticism of that"
This is complete coblers and there are any number of examples to prove it.

If you want to bury news in the UK, you release an RNS on a Friday as late in the day as possible. I assume the same applies in Australia. No reporting, w/e coming up, minds turn to leisure activities. So this was the same mo with our oh, so clever Chairman, CEO and whatever other roles he is taking now that RG is almost certainly gone as well.

When you fall in love with a company of course the company can say and do no wrong so any criticism whether justified or not is not to be tolerated and must be stamped out. Go on the attack and criticise the criticiser rather than take note and learn something outside your own closely held opinions.

Most of us who post here have a lot of time and money invested in MML and want to see the company perform and do well. When that is not happening no amount of (unjustified) criticism by you will stop me and others from posting our observations and opinions.

[atlantic57] 01/2/2016 10:01

Hi Chip,

Have you a feel for valuation of miners on free cash flow multiples.
i thought it used to between 3 and 5

thanks

[chipperfrd] 01/2/2016 02:38

steve,

The Service Shaft was first mentioned as being under consideration in the 1H15 report on 24 Feb 2015. It was then announced on 9th April 2015 that it had been approved and that it would take c. 17 months to complete. Based on that timeline I marked September 2016 as the target completion date on my quarterly sheet for MML. So you are incorrect, September WAS specifically projected to be the project end date.

The depth extension that has just been announced will therefore take c. 8 months longer to complete, which is what they have stated in the Dec 15 quarterly report.

I think your comments about 'lies and distortions' are unjustified and out of order.

Taking the Service Shaft deeper is clearly an advantage over the longer term as it will extend the useful life of that shaft well beyond the 10 years originally planned and such a change to the design had to be actioned immediately due to the planned final delivery of the winder and head frame.

If you remember, the L8 shaft was also extended deeper when already in construction - and what a good thing that they took that action at the time!

Also, the original E15 shaft plan was changed in late 2014 (by RG) and replaced by the new L16 project. However, the partial sinking of the E15 was not wasted as it has been incorporated within the sinking of the Service Shaft with consequent saving of Capex.

These are examples of mine management taking a pro-active role to enact changes of design to meet improved investment outcomes - for which I applaud them!

They always report on the last day of the month following a quarter - so I do not accept your criticism of that - are you honestly that bothered by it?

As for your comments about their exploration, development and Capex expenditures - well welcome to the reality of running a mining company! They have to keep exploring (although currently it is mainly essential U/G drilling down to L16) for obvious reasons as they HAVE to replace depletion.

Development is an absolute, ongoing, 'necessity' for a narrow vein miner as otherwise they would run out of new stopes and production would dry up - I thought all this was well discussed here years ago!

Obviously, the L16 is critical for taking mining out to c. 20 years from now after the L8 and above is fully mined out. What choice do they have do you imagine? What do you think would happen to their market multiple if they just decided to stop at 10 years hence? - not that their current PER is even remotely factoring-in current earnings - but that is another story!

As for the Energy SECURITY project - I think the term describes why they NEED to protect the running of the mine/mill from the vagaries of the grid supply and the volatility of the oil price in the future. In any case, expenditure on this project is minimal and any future Power Station would almost certainly be on a JV basis with an Energy Generator company taking the capital risk and MML just providing the fuel and contracting to buy a portion of the electrical output for their energy needs.

Chip

[deka1] 31/1/2016 18:15

Steve hi, as long as we get there in the end lol.
All it will take is the gold price to have a gradual recovery, and a sentiment shift in the sector,gold back to 1300-1400/oz and Medusa ,producing 130000/oz will be swimming in money , and some of it will come to me lol.

[stevea171] 31/1/2016 17:43

RNS 7 July 2015 re the Service shaft: "The rope guided man-cage is scheduled to be installed in the second quarter 2016." ie implied to be operational on or before end June 2016.

RNS 29/1/2016: The construction of the Service Shaft, originally planned from surface to Level 8, and due for completion in September 2016 is now scheduled to be completed in June 2017 as a result of the decision to deepen the shaft to Level 10.

So they appear to have engineered a 1 year delay in the project whilst taking it from level 8 to level 10.
September has never before been specifically declared to be the project end date. So is this new statement acceptable? I don't think so. It seems to me to be yet another example of the culture of lies and distortions we had under PHB returning.
Original cost $10 million. New cost not declared.

It now seems this production expansion (from 100k to 160k ? oz/year, not 200k oz/year) will have taken about 3 years for the new mill + a follow on 3 years for the mine infrastucture/haulage capacity upgrade, a total of 6 years that should/could have been done by any other company with competent management in a few years at most.

This company is being run under present management as 'a job for the boys' in The Phillippines and WA. There is an endless list of capex required for exploration and development to support existing and future production and development plus salaries for management in Perth. Next up: coal and $50 million plus for the L16 shaft, Bananghilig, Guinhalinan? etc, etc such that free cash for dividends for shareholders is likely to be bottom of priorities and a distant dream ....

PS. Why did it take the company till just a few hours before the ASX listing requirements deadline on the last day (29/1) for reporting Q2 results? Is there nothing that they can do (without Geoff) in a reasonable way just once or ever?!

[roguetreader] 30/1/2016 20:20

Cheers Chip great summary
RT

[swallowsflysouth] 30/1/2016 16:49

Hi Chip,
Bringing out enough gold to implement improvements, build up a cash pile to ensure debt avoidance, and keep things ticking over until pog goes up is a somewhat useful strategy.
sfs

[chipperfrd] 30/1/2016 15:15

The quarter financials continued to show Q-on-Q improvement in line with good grade and recovery levels. Mined & milled ore levels were down a bit as previously guided because of the SAG mill re-line.

Reported AISC of US$950/oz agreed exactly with all cost figures shown in the report including some discretionary exploration expense.

FY16 guidance looks perfectly achievable according to my estimate of 123 koz of production and an average AISC of c. US$942/oz - assuming tonnage and grade levels remain at current levels for 2H16.

No figure given for broken ore inventory held within mined stopes. It was reported as 60,000t in June 15 (excl development ore) so, based on the half year difference between mined ore and milled ore, it may currently be as high as c. 81,000t (excl dev ore). This would equate to around 19 koz of contained gold which is awaiting hoisting.

Figures suggest that currently c. 20% of hoisting capacity is being utilised for non-ore waste removal. The increased depth of the service shaft from L8 to L10 (+ sump) would appear to add another 504 cub metres of waste that will need to be hoisted by the L8 shaft (or used as stope infill). At a SG of 2.62 I estimate that this would be an additional 1,320t of waste.

Difficult to know when the other mine improvements will complete (ventilation shafts, et al). But when they do, the volume of waste should decrease in the near term freeing up mine haulage capacity for ore.

The increased depth of the service shaft will extend it's previously estimated life (10 years) by a couple of years or more. Although I have eagerly awaited the completion of this project and the boost of L8 shaft capacity by 300tpd (21%), I can also see the value of doing this now whilst the gold price is suppressed as it is likely that the delayed draw-down of broken ore held in mined stopes are likely to benefit from higher prices the longer they are held underground - but that is just my personal opinion!

The blind sinking of the service shaft from above to L3 will remove an unwanted need to hoist this waste from underground if it had continued by using the Alimak method. But, as mentioned above, there will now be an increased waste tonnage generated from the 126m of additional sinking below Level 8.

I am assuming that the stripping of the entire service shaft to it's final 3.2m x 3.65m dimensions will wait for the completion of the new head-frame and winder, as then the c. 9,000t of additional waste can be directly hauled up the service shaft without needing to use up any of the L8 shaft capacity.

All in all, I viewed this quarterly as very positive. I still see MML priced at an extreme under-valuation on a simple Price/Earnings basis. The 1H16 Financial report in a months time should help to emphasis this market multiple anomaly. As to whether it will make any impact on the ASX price is a moot point given the extraordinarily poor sentiment that continues to weigh down the SP!
Chip

[deka1] 29/1/2016 18:30

Hi Guys , re a T/O, i have always thought that the big players in the gold mining game are not interested in underground workings, to complicated for them ,all that geology,and small published reserves, they go for the big high tonnage open pit workings, with many millions of ounces proven up.
Perhaps this will protect us from predators .

EDIT most of the debt ridden small/ mid caps are in deep poo or bust already,
would private equity be interested ? the PMs are hated at the moment,

[justinjjbuk] 29/1/2016 17:50

tightfist

We won't know exactly until we see the formal interim report in a another month to do a proper cash flow adjustment, but it looks like they achieved free cash flow of almost $5 million in the quarter just ending. This just highlights the extraordinary cash flow potential once the service shaft is completed (let alone with a higher gold price).

As you say, it would be a complete travesty if MML gets taken out just as the business comes good. The only positive is that there exists no large strategic holder of the shares to spearhead such a takeover. Paradice Investments is probably the largest investor and they likely averaged in at a price at least twice the current share price. Accordingly, I doubt they would we be impressed even if a bid came in at a 100% premium.

[tightfist] 29/1/2016 17:12

I am travelling at present so just a few quick comments.

I thought the Quarterly Report was very well written and even more transparent than what we have received before. This has the fingerprints of RG written all over it, especially compared with what AT produces.

Even if GD and RG's(?) hands are not on the Rudder, the company will not immediately perform Rudderless. All decent managers leave a legacy of good decisions and implementation plans which will stand the company in good stead for a while.

RG was confident that $5m p.qtr FCF is readily achiveable; the delay in reaching 2,700 tpd and the (unstated?) incremental cost of the Service Shaft may delay that FCF, unless PoG is kind to us.

I mentioned a while ago that RG and RW could maybe collaborate to mount a buy-out. After the CEO selection process, the inner workings and cash-flow of MML will be known to even more well-connected people.

That would surely be a travesty to committed PI's........ Are we able and willing to do anything to influence the outcomes?

Cheers, tightfist

[goldminer70] 29/1/2016 15:35

I thought that speedsgh's post was too pesimistic. So I emailed Rob Gregory directly, this was immediately returned as "undeliverable" We exchanged EMails at that EMail address in December
So I have EMailed Andrew Teo reminding him that he told me in mid November that a new CEO would be appointed "within a month". I also reminded him that he hadn't replied to my EMail at the beginning of January, and that an EMail to Rob Gregory has been returned "undeliverable"

I wait for answers ~ but I am not holding my breath.

Goldminer70

[justinjjbuk] 29/1/2016 14:56

speedsgh

Well spotted on the omission of RG as COO. If it is what it appears to be, I am surprised that the company hasn't been obliged to put out a statement as surely this would be material to the stock price.

This is pure speculation, but I wonder whether a problem arose over RG's package. His original 500,000 in share options (one dollar strike price) would have been given when the stare price was around 60 cents and gold at $1,180. The negotiations would have been conducted when gold was in free fall at the end of last year and getting down to $1,050. I presume he would have been negotiating furiously for a new option package on the CEO appointment to give him more skin in the game at a lower gold price. Personally, I would have given him another 500,000 or even 1 million options at a 50 cents strike price since his contribution to turning MML around is worth many multiples of this. But who knows what happened. From his CV, RG has moved around a lot, so perhaps patience is not one of his virtues.

It doesn't appear, however, that the company is completely rudderless since extending the service shaft down to level 10 was a major decision and the quarterly report suggests this was made on the recommendation of the consultants in January. In other words, we know we have an active number of consultants present at site getting stuck into the firms operations. Although not a mining engineer, also note that Gary Powell's appointment as a full-time manager was announced at the same time as RG become COO back in Nov 2014 and Gary Powell's name is still on the release.

More important is to not lose focus on the cash situation (follow the money!). The $4.4 million quarterly cash build was much better than I expected given a) the slump in the gold price, b) the previous flagging of mill issues and c) MML's annoying habit of aways finding some kind of extraordinary expense to prevent cash building on the balance sheet in past quarters.

Cash now appears to be rolling in even at a very depressed gold price. Critically, the company has cash in hand equivalent to one third of the stock market capitalisation, which will rise to one half by the end of this fiscal year (only six months time). And by the end of FY 16/17 it should have cash in hand equivalent to its entire current market cap! The stock is becoming a cash-generating monster even before the new service shaft is completed!

The current stock price to cash flow ratio is currently ridiculously low. And should the gold price ever go up, we will enter Alice in Wonderland valuation territory where the company generates more cash in one year than its entire current market capitalisation!!! In my career, I just have never seen a stock so cheap.

[bluelynx] 29/1/2016 14:36

Does anyone have contact with Geoff Davis, I do believe he still has significant shareholdings, if so may be he could throw some light apon this odd situation.

[speedsgh] 29/1/2016 14:27

Sorry for my negativity, Chip. Just trying to come to terms with what appears to be another blow with the apparent loss of Rob Gregory's services. He is held in high esteem so sad to see him go (if indeed he has).

My main concerns are not operational, but a lack of confidence in the board + where they may lead us from here now that Geoff Davis has departed again. Probably best to turn off the monitor + come back again in 6 months time :o)

Have a good weekend.

[chipperfrd] 29/1/2016 13:47

It's hardly 'rudderless'! We have had improving quarterlies since mid 2014.

This is a company that has always had a tiny executive at Perth with everyone else being contracted to the holding company in the Philippines. Mine management has now had a good shake-out and effective solutions have been put in place to set Co-O into a long term sustainable cash cow. As long as the local mine management keep things on course, all should be well.

There is always a risk of M&A (there was an approach in September 2008 from a Hong Kong outfit). But any approach would have to be at a premium to whatever the current price is.

Again, I have no idea if such an approach might occur. All one can do is take a view (and action) if and when such news breaks. It would certainly be a positive in share price terms - but hardly in the best interests of investors with longer time horizons.

[speedsgh] 29/1/2016 13:18

Well, if ever a predator is going to be interested in MML, it surely is going to be now. Having appeared to have turned the corner operationally + with all the fruits of its labours strung out in front of it, the company now appears to be effectively rudderless on both a management + operational level. It would not be difficult for someone to pick this up for an absolute snip, especially in view of the lack of institutional shareholder support. Wouldn't surprise me if Mr Teo was willing to pretty much give the company away, just to get the inconvenience off his back. Aimho.